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Virtual Goods and Regulatory Insights from the European Perspective

Guest article by Petteri Günther on EU regulatory issues in connection with real-money trade on digital items in virtual worlds.

Introduction

Virtual worlds, for example various massively multiplayer online role playing games (MMORPGs) are becoming increasingly real to many people around the world. This emerging field of digital economy within virtual worlds has made us to face the interdependence of those and “real” offline worlds. This occurs e.g. in form of real-money trade (RMT) on digital items, while the question on property rights over digital items remains basically unresolved in Europe, although the US and the rest of the world are pretty much in the same situation.

In this blog post I concentrate particularly on issues that have risen from economic activity in connection with virtual worlds as well as online gaming frauds, in which other players often target other MMORPG end-users. The purpose is to provoke discussion on whether these developments should cause legislators to become more interested in what happens in cyberspace as RMT in virtual worlds is a wide-spread phenomenon and generates considerable economic values on a global scale. Many virtual world service providers are rather unwilling to recognize players’ rights to in-game assets, as they probably worry about liability issues, e.g. when it comes to online-world frauds that, nevertheless, are reality. Also European courts have addressed this matter quite recently.

Virtual Worlds and the EU regulatory Framework

The European Network and Information Security Agency (ENISA), which is an EU agency created to advance the functioning of the internal market, has estimated that the worldwide annual RMT of virtual goods amount to nearly 1,5 Billion Euro. [1] ENISA has reported in its 2008 report, Virtual Worlds – Real Money [2], that “the failure to recognize the importance of protecting real-money value locked up in this grey-zone of the economy has lead to a ‘year of online-world fraud’.” A survey, which is included in the ENISA report, indicated that 30% of users have lost some form of virtual property through online gaming frauds targeting virtual world end-users. [3]

McInnes et al. divide regulation of virtual worlds regulation of the world itself and transactions of digital items. [4] A digital item can be defined as ”an image created by a service provider and tracked through a database that can be transformed and exchanged among users. Its value is decided through rarity, utility, and resulting demand.” [5] From a legal point of view the virtual world service providers purport to “legally link” the online and the real-life world by means of contract law through their end-user license agreements (“EULA”) and thus create private rules to compensate the somewhat absent regulation, and thus enable the potential development of “self-regulatory structures on the net.” [6] In practice, this could mean industry self-regulation with respect to virtual worlds.

For the purposes of analogy to a property-style regime, we can take the International Corporation for Assigned Names and Numbers (”ICANN”) [7] as an example. It is an organization that acts as a global coordinator for internet addresses, domain names. With the aid of adopting this system, there are clearly defined property forms associated with domain names, which can also be termed as virtual property in the sense that they also are intangible assets but mimic certain characteristics of real-world assets, like exclusive ownership, persistence of rights and transfer of rights by agreement. Some online resources, such as digital items and powerful characters in massively-multiplayer online games, as well as domain names – just to point out a few, are almost identical to some physical goods in that sense that only one person at a time can control that particular resource.

There is a recent case [8] from the Netherlands where the defendants had used physical violence and thus forced the victim to hand over virtual goods in a MMO game RuneScape. The virtual goods, a mask and an amulet, were transferred from the victim’s account to the other defendant’s account in RuneScape. The court confirmed in its verdict that the said virtual goods qualify as goods under Dutch law. This was a prerequisite for the actions by the defendants, forced transfer of the virtual goods by using physical violence on the victim, to qualify as robbery (diefstal met geweld) under Article 312 of the Dutch Criminal Code.

In Finland a player had sold his World of Warcraft account to another player and, after two years used a master password to regain control of the account. The perpetrator was accused of criminal damage [9] and unauthorised use [10]. The parties settled the case later and the charges were thus dropped, so there was no final verdict on the merits of the case.

Conclusions

The concept of virtual worlds and virtual property is novel: there are precedents, neither in law nor in practice, to provide guidance. The real-money trade of virtual property is an example which shows that the real and virtual worlds are interdependent. And, while that interdependence is recognized, at the same time property rights over digital items have not yet been determined in Europe. Hence, currently it is possible to assume that there is inefficiency in allocation of rights in virtual property.

How should law treat intangible code that has been coded to resemble tangible? There are many ways to approach this question and different views are presented depending on whom you ask this question. According to Lastowka and Hunter a property system is central to the functioning of most contemporary virtual worlds. [11] But on one hand virtual world service providers assume contractual freedom by default to confirm their control over the MMORPGs and make certain their protection later on. Terms for entry to virtual worlds is regulated by EULAs, which specify the Terms of Service to declare the company’s claims regarding ownership and intellectual property rights over both game content – such as characters or items – and activity by players – the end-users. On the other hand economically efficient use of online resources would, based on Lastowka’s and Hunter’s assertions above, call for exclusive ownership, persistence of rights, transfer of rights by agreement, as well as a currency system to facilitate transactions on virtual property. [12]

Nevertheless, the volume and monetary value of RMT makes it a public policy issue of a broad impact. One solution to this situation in European context would be to apply the European mixed mode of regulation comprising industry self-regulation, such as codes of conduct for virtual worlds and establishing harmonizing regulatory instruments at the Union level to protect the rights of those within the virtual worlds as well as to support the development of virtual worlds.

A good approach, as envisioned in the Virtual Worlds – Real Money report, would be to address certain policy issues e.g. by setting up a forum for virtual world service providers to establish best practices [13]. But, if industry self-regulation finally proves inefficient to provide sufficient level of protection for users, many of whom have recently lost some form of virtual property through fraud, and where the service provider has been reluctant to address the matter and referred to their ToS banning RMT on digital items, the need for regulatory actions should be considered to clarify the issues in order to protect users.

Author’s bio

Petteri Günther, LL.M, LL.M. (Law and IT), graduated from the University of Helsinki in 2006 and from the Stockholm University in 2007. In his master thesis (LL.M. in Law and IT) at the Stockholm University, upon which this article is based, he delved into real-money trade of virtual goods from the European perspective. The author is currently working as an associate lawyer at Lexia Ltd, a Finnish, Helsinki-based law firm, and focuses on IT and intellectual property law.

6 See: David R. Johnson & David Post, Law and Borders – The Rise of Law in Cyberspace, 48 Stan. L. Rev. 1367, at 1370-76 (1996) (where the authors discuss the difficulties in real world jurisdictions).

2 thoughts on “Virtual Goods and Regulatory Insights from the European Perspective”

Other authors have had their articles reposted from this guy full-text without permission. I’m assuming it was the same for yours. That is, of course, not Fair Use of your copyrighted material. Thought you’d like to know.